buying 1st home (in CA) to live in but also invest for future

14 Replies

So I recently moved to the most overpriced market, the SF Bay Area, for a non-tech salary job and thought it's a good time to dive into the market just because I've been renting for many years and interest rates are relatively low. I'm currently renting a room in a 3b/3b house for $1200/mo.

I realize my money is not going to go very far but my plan was to get a house (probably can only afford condo/townhouse or older SFH home in a not so prime neighborhood) perhaps 2b/2b and then rent out one of the rooms. The income can at least help cover the utilities, property tax, and/or HOA. I have around $150k for a downpayment which is peanuts here I suppose. In the future my plan is to obviously purchase another property and rent out either one of the entire homes for more cashflow - whether also in CA or out of state is tbd since money is not there yet anyway.

I guess my question is does my situation seem like a plan as far as buying in SF now with the limited $'s I have, since I'm living here anyway - or should I keep my rent and try and buy out of state as a 1st purchase? any tips for newbies will be helpful.

Thanks!!

A condo definitely seems like a good safe, low risk move. 

An alternative would be to move to the East Bay, FHA loan (maybe 10% down) on a 2-3 family in Oakland, Berkley etc. Live in one unit, rent out the other. You could maybe go as far as renting out one of the rooms in your own unit. I haven't ran numbers out there before, but I'm sure that would put you under your current 1.2k.

I used to live in The City.......and was paying to rent a room in a house........then discovered that I could buy a Condo in the East Bay and have about the same monthly payment per month including the HOA........instead if buying a 1/1 I went thr route oof a 2/1 Condo....started renting out the extra bedroom for my first househack. Now as a Realtor I encourage people to do the same thing for their first investment. We just recently helped a couple buy their first house in Oakland. It's a 3bd/1.5 ba fixer upper that has an in-law unit in the back. We coached them live in the In Law unit......in the meantime the main house is being fixed up and when it is, they will rent it out and have the renters cover their PITI.

The reason why I said we coached them to move into the In Law unit is they wanted to move into the main house,...fix it up and then they said they would "move" into the In Law unit afterward. I told them, "Once you get used to living in the main house while fixing it up, you won't want to move into the in-law unit so create the habit now and move into the in law unit". 

They did. 

Simple business. 

I just bought in bay area a few months ago. Got a 5bd/5ba in Hayward for 880k. I converted the garage, and I'm cash-flowing now, the tenants cover the mortgage and I get paid to live there.

Outlined here: https://www.biggerpockets.com/...

Originally posted by @Brian Garlington :

I used to live in The City.......and was paying to rent a room in a house........then discovered that I could buy a Condo in the East Bay and have about the same monthly payment per month including the HOA........instead if buying a 1/1 I went thr route oof a 2/1 Condo....started renting out the extra bedroom for my first househack. Now as a Realtor I encourage people to do the same thing for their first investment. We just recently helped a couple buy their first house in Oakland. It's a 3bd/1.5 ba fixer upper that has an in-law unit in the back. We coached them live in the In Law unit......in the meantime the main house is being fixed up and when it is, they will rent it out and have the renters cover their PITI.

The reason why I said we coached them to move into the In Law unit is they wanted to move into the main house,...fix it up and then they said they would "move" into the In Law unit afterward. I told them, "Once you get used to living in the main house while fixing it up, you won't want to move into the in-law unit so create the habit now and move into the in law unit". 

They did. 

Simple business. 


We all know that location matters a lot, so i'm wondering is it better to get a smaller condo in a nicer area? Or get a larger, newer maybe SFH home in an inexpensive "less desirable" location? I was listening to one of the BP Q&A episodes and the guest said get the best place you can afford in the nicest area. So i'm thinking long term, it's hard to predict..

 

Originally posted by @Nicolas Nuvan :

A condo definitely seems like a good safe, low risk move. 

An alternative would be to move to the East Bay, FHA loan (maybe 10% down) on a 2-3 family in Oakland, Berkley etc. Live in one unit, rent out the other. You could maybe go as far as renting out one of the rooms in your own unit. I haven't ran numbers out there before, but I'm sure that would put you under your current 1.2k.

I just thought of a question - if you can afford traditional 20% down should you still opt for FHA loan? I know it's so competitive in CA most sellers want as much cash in offers as possible

@Chi Wen

Hi @Chi Wen,

I think you need to figure out where you want to be and where are you planning to spend majority of your time on your days off and etc. Figuring out what you want is also important: ie, commute time to and from work esp post covid since traffic is back, in unit washer dryer, parking, bike storage, you get the idea. I also advise my buyers, they need to be ok with the location for the next 5–10 years. Real estate is long term, not short term.

Feel free to reach out if you want to chat about the market. I’m happy to help.

@Chi Wen   Every buyer is different. We always like to sit down over a cup of coffee in person to discuss because there are no cookie cutter approaches.

@Chi Wen

Cash on cash returns are always better with less money down. Conventional is more attractive when submitting offers, but I’ve won bidding situations over conventional/cash offers.

Even if you do 20% down FHA, your interest rate will be atleast 1% better

@Chi Wen i purchased my home with rental property attached in a very bad part of east Los Angeles 18 years ago. I bought something I knew I could afford but with a small rental attached to help me afford it. Years later, demographics have changed and the value has nearly tripled in the area.

Im not giving advice as much as an option, buy where you can afford with either rooms or entire apartments to rent out, and sooner or later you will likely get your moneys worth in San Francisco.

Originally posted by @Frank Posluszny :

@Chi Wen i purchased my home with rental property attached in a very bad part of east Los Angeles 18 years ago. I bought something I knew I could afford but with a small rental attached to help me afford it. Years later, demographics have changed and the value has nearly tripled in the area.

Im not giving advice as much as an option, buy where you can afford with either rooms or entire apartments to rent out, and sooner or later you will likely get your moneys worth in San Francisco.

thanks for sharing. will consider it an option

 

Originally posted by @Nicolas Nuvan :

@Chi Wen

Cash on cash returns are always better with less money down. Conventional is more attractive when submitting offers, but I’ve won bidding situations over conventional/cash offers.

Even if you do 20% down FHA, your interest rate will be atleast 1% better

5% down conventional is the best for single family. 

The low FHA rates are misleading because the upfront MIP and monthly mortgage insurance is very high for FHA. FHA is good for buying a 2-4 unit with 3.5% down.

 

Originally posted by @Chi Wen :
Originally posted by @Nicolas Nuvan:

A condo definitely seems like a good safe, low risk move. 

An alternative would be to move to the East Bay, FHA loan (maybe 10% down) on a 2-3 family in Oakland, Berkley etc. Live in one unit, rent out the other. You could maybe go as far as renting out one of the rooms in your own unit. I haven't ran numbers out there before, but I'm sure that would put you under your current 1.2k.

I just thought of a question - if you can afford traditional 20% down should you still opt for FHA loan? I know it's so competitive in CA most sellers want as much cash in offers as possible

Hi Chi Wen, there are lots of ways to go here, but if the goal is to develop a portfolio of properties, here's what I would do in your position. Find a house hack property(SFH/Duplex) in a Bay Area neighborhood that has potential. Use FHA or conventional with the low down payment so you don't tie up your capital and take advantage of the low interest rates. Once your situated, start looking for your next property with the left over savings, and depending on your comfort level, start building your team for out of the area investments. Even is the next property is 1-2hrs away, you'll want a few members of your team to take care of the place. This will provide peace of mind, and stability in growing your portfolio. Of course bigger pockets can help find those people too!

If you'd like a referral let me know, and best wishes going forward.